PCAR - Paccar Inc $72.92 ** Stop loss $68.50 **
After a bounce on Monday PCAR traded flat all week. It did not succumb to the Nasdaq weakness on Wed/Thr but neither did it rally on Friday. It appears to be consolidating from the recent volatility.
Paccar is the number two maker of heavy-duty trucks with two of their major brands being Peterbilt and Kenworth. Paccar produced a company record of 124,000 trucks in 2004 as healthy freight volume pushed demand. Earnings were announced on Feb-1st and revenue increased +44% and earnings +52%. The company said sales continue to be strong with an expected 15% jump in total truck sales in the U.S. in 2005 and a +5% jump in Europe. Market share in North America increased to +24% on heavy duty trucks and 9.4% on medium duty vehicles.
Paccar had risen from $52 last January to $81 at the close of 2004. Like all the other winners they were hit hard by profit taking and knocked back to $68.50 on Jan-28th. After two weeks of sideways consolidation they have started to move higher once again. This is a stable company with very strong earnings and growth and should be a target of fund managers once the techs move into overbought territory. $70 appears to be holding as support and hopefully a launching point.
2006 $70.00 LEAP Call YYQ-AN @ $8.80
Stop loss $68.00 This will be below the January dip.
No insurance put
Entry point $71.80 (02/07)
ADSK - Autodesk Inc $29.48 ** Stop loss $27.50 **
Autodesk traded in lock step with the Nasdaq moving to new highs for the month through Tuesday and then selling off to support by Thursday. The Friday rebound was not strong and we are back in the middle of the trading range. No excitement here and we are trapped my the weak Nasdaq.
Autodesk is the worlds biggest software design maker and the stock has made quite a few investors a lot of money. In 2004 the stock rose from $12 to $39 for a +209% gain. Needless to say the company was hammered once the calendar expired and it dropped to a low of $26 on profit taking. On January 24th, the low for the current market and after a 33% January drop the company was downgraded on valuation my Banc of America. BAC was late to the party but ADSK saw another -12% drop on the news. Smith Barney retaliated that the concerns over share price had already been factored in with the January selling and suggested there was upside potential.
In November ADSK raised guidance for 2006 above analysts estimates and nothing has change from the company. A string of positive press releases continue to paint a picture of business is booming. Earnings are Feb-22nd so we do have event risk but I would like to think the risk is to the upside. The 100-day average has proved to be support in January as is did last August.
Autodesk does not have leaps. Since the normal time in a leap trade is only about two-three months I decided to enter the play with the July $32.50 call instead at $3.20. It is cheaper than a leap and plenty of time to play. The July $30 call is only $4.40 and it is already $1.33 in the money.
I am not going to recommend an insurance put because of the cheap calls. The closest strike at $30 makes the March put $1.60. I can't see paying $1.60 to insure a $3.20 position.
July $30.00 Call ADQ-GF currently $4.40
No insurance put
Stop loss $27.50
Entry point $31.33 (02/07)
DGX - Quest Diagnostic $100.01 ** Stop loss $96.00 **
Quest is still moving higher and one of the few stocks not in the energy sector to do so. $100 is long term resistance and I would expect some profit taking here. I hate to more the stop too close but I also hate to give back our $5 in gains. After the January dip we need to pocket some gains. I am going to raise the stop to $96 in hopes DGX continues higher.
Quest announced a +21% increase in earnings in January and soared from $89.50 to just over $96 in a week. Instead of consolidating those gains it just keeps moving higher. We entered DGX on Jan-21st as it was moving lower and touched support at the 100-day average at $90. Three days later the rocket ride began from $89. The trick now is to stay far enough away from the price to keep from getting stopped but not give back all of our gains.
Quest Diagnostics Incorporated is the nation's leading provider of diagnostic testing, information and services, providing insights that enable healthcare professionals to make decisions that improve health. The company offers the broadest access to diagnostic testing services through its national network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff.
Quest Diagnostics is also the leading provider of esoteric testing, including gene-based medical testing, and provides advanced information technology solutions to improve patient care. (Source DGX)
2006 $95 LEAP Call YFK-AS @ $6.40
Entry $91.00 (01/21)
QCOM - Qualcomm $36.15 ** Dropped **
Despite our very strong put insurance with the April $40 put I am dropping QCOM today as a non-performer while we still have a breakeven on the options. It did not rebound with the SOX this week while most other chip stocks did. The SOX closed at a new high for the year and QCOM near a new low. Exit safely now.
In our current position with the Put in the money we are very well protected with a total cost of entry only slightly above $5.90. I think this is about as good as it gets with our April put and plenty of time to run. I am going to set a stop on the put at $39 to prevent a complete giveback if QCOM suddenly finds traction. Since our LEAP will also escalate we should not lose much if the put is stopped.
QCOM failed at the 200-day average at $37.80 but still has plenty of support at $35.
Qualcomm is a leading technology provider for wireless communications and pioneered the CDMA standard used in many phones today.
2006 $42.50 LEAP Call WLU-AV @ $3.20 exit $2.05 -1.15
Stop Loss on Put QCOM at $39.00
Entry $38.00 (01/20)
ELN - Elan Pharma $27.28 **Stop loss $25.50**
ELN has a Jekyll and Hyde mentality lately bouncing from strongly bullish to strongly bearish on alternating weeks. There was a serious sell off from the new two-week highs on Tuesday at $28.50 to dip as low as $26.00 on Thursday. Friday saw a recovery to $27.50 and right in the middle of the range. The 100 day average is still acting as support and a break of that average will hit our stop.
Elan is a neuroscience-based biotechnology company that is focused on discovering, developing, manufacturing, selling and marketing advanced therapies in neurodegenerative diseases, autoimmune diseases and severe pain.
In neurology, Elan is focused on building upon its breakthrough research and extensive experience in the area of neuropathology-based disorders. In addition to Alzheimer's disease, Elan is also studying other neurodegenerative diseases, such as Parkinson's disease.
On December 28, 2004, the U.S. Food and Drug Administration approved Prialt for the management of severe chronic pain.
On November 23, 2004, the U.S. Food and Drug Administration approved TYSABRI, formerly referred to as Antegren, as treatment for relapsing forms of multiple sclerosis (MS) to reduce the frequency of clinical relapses.
2006 $30 LEAP Call WTB-AF @ $5.30
Insurance Put - added Jan-23rd
Stop Loss ELN $25.50
Entry $28.50 (01/11)
IBM - IBM $93.30 ** No Stop **
IBM acted like a Nasdaq stock last week and traded up Mon/Tue and down with the Nasdaq on Wed/Thr. Unfortunately the Friday rebound left a lot to be desired. I struggled with the open/close decision this weekend because we are right in the middle of the rebound range. We are down slightly on both the put and the leap with plenty of time remaining before the April put expires. I want to be optimistic but IBM lost some of its excitement with the dip. I am going to let it ride one more week. We really only need it to pick a direction. We could be profitable with plenty of time on both directions.
If the market did decide to reverse IBM could find buyers as a safe big cap with increasing earnings. I think we are safe from any material loss and have plenty of upside potential if the market turns around.
IBM is moving strongly into even more areas of system and software services and maintains a huge backlog of orders.
IBM is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. IBM Software offers a wide range of middleware and operating systems for all types of computing platforms, allowing customers to take full advantage of the on demand era
2006 $100 LEAP Calls WIB-AT @ $5.00
Entry $94.00 (01/13)
IWM - $126.60 Russell Index Ishares ** Dropped **
The Russell traded along with the Nasdaq and just weak enough to get us into trouble. The IWM traded back down to $124 and triggered the February $123 insurance put entry at 60 cents. Considering our current profit in the long calls is only 50 cents we are effectively at a breakeven after three weeks in the position. The Russell finally moved off the lows last week but stalled and the outlook does not look good. I have some growing concern that the Nasdaq is going to fail.
I am exiting this play for a breakeven given the failure to follow through on the rebound from the January lows.
IWM MAY-$125 Call Option DIW-EU @ $5.20 exit $5.60 +0.40
Entry $123.05 (Jan-18th)
ADBE - Adobe Systems $63.77 ** Stop $61.50 **
ADBE has stalled at $64 after a monster post earnings run. I raised the stop to just below Thursday's low just in case more Nasdaq weakness appears.
Adobe is the king of the document and image business and continues to announce new products. The company announced earnings in December that rose +33% and beat estimates. Income for the year rose +69% on a +29% increase in revenue. Adobe affirmed guidance for 2005 and the stock has been beating the Nasdaq in percentage gains. In 2004 the stock rose +60%. Since they have already announced earnings we have very little event risk over the next month.
I recommended the February $55 put as insurance at 80 cents. That gave us six weeks for the Q1 earnings to cycle and for ADBE to pick a direction. If we are not profitable by Feb-18th expiration we will close and take our lumps.
Jan-06 $60 LEAP Call WAE-AL @ $7.50
Stop loss $61.50
Entry $58.78 (01/09)
RIMM - Research in Motion $76.00 ** Stop loss $72.00 **
I was encouraged that RIMM did not sell off as strongly as some Nasdaq stocks. Support at $74 has held and RIMM is ready to move higher if the Nasdaq decides to continue its rebound. The insurance put will expire next Friday so a decision will need to be made on keeping RIMM next week. I am instituting a stop at $72 because of the expiring put.
The $70 insurance put continues to protect us against a disaster and once buyers return we know from past experience RIMM can move quickly.
The court case will be back in court for a long time and RIMM is still selling and improving the Blackberry. They are escrowing a required portion of the sales to satisfy the judgment should the case eventually go against them.
RIMM is very profitable and should continue to be profitable. Hardly a week goes by that we don't see some new development in their product line.
This is not for those with a low risk profile.
Jan-06 $80 LEAP Call WLJ-AP @ $12.40
Entry $74.30 (01/09)
SYMC $21.62 Symantec - Veritas ** no stop **
SYMC was knocked for a substantial loss on Tuesday when Microsoft bought their third virus company in the past two years. The new Microsoft product will be a virus checker for email. SYMC was at a two week high at Monday's close and lost nearly -$3 on the news and the Nasdaq sell off. We still have little risk and with the insurance put we are only down about -$1 on the play.
We have a good position here with strong support at $20 and an April $22.50 insurance put. Very little risk and plenty of potential.
I believe that the SYMC/VRTS merger is a match made in heaven and analysts will come to that view as more plans are announced. The companies have no overlapping products but all their products are perfect fits for the others. With one company having anti-virus, data security, backup, recovery and storage management it puts the other stand-alone companies in a very difficult position. EMC and QLGC both fell in the storage sector and Mcafee was crushed in the anti-virus sector.
There is no stop on this position. With the 2007 LEAP Call any minor dips will not result in a material drop in the leap. The April $22.50 insurance put will protect us from any potential disaster. For me this is a buy and forget play.
2007 $25 LEAP Call OBL-AE @ $6.30
Entry $25.37 (12/19)
XLE - S&P Energy SPDR $40.42 ** Stop loss $38.00 **
The XLE continues to outperform the market and made a new all time high on Friday. We have very little risk here and strong rising support. I do expect oil prices to come down in March so we need to monitor this one closely for signs of weakness.
I instituted a stop because the March insurance put at $34 is so far away from the current price. We are up +$3 on the 2006 LEAP and I don't want to give it back. The $34 put is now worthless but I am not writing it off. Should the March weakness show up as I expect we could still recover some of our PUT investment.
The XLE SPDR is composed of 27 energy stocks and represents about 8% of the SPX. This is the 8% that helped push the SPX to the current levels with the rise in oil over the last year. In fact the XLE has far exceeded the SPX in performance over the past year.
I am not putting a stop loss on this play. I am suggesting an insurance put to offset against any material drop. Because I believe oil is in a long term up trend I do not want to get jerked out of this position. If we see that oil is not moving higher by March I will reevaluate the position.
2006 $35 LEAP Call WHA-AI @ $3.60
Drop insurance: March $34 Put XLE-OH @ $1.00
Entry $35.55 on 12/12
Components of the XLE